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MAYER STEEL PIPE CORP V. COURT OF APPEALS (1997) Puno, J.

Petition for review on certiorari to annul and set aside the decision of the Court of Appeals RATIO DECIDENDI The insurer's liability is based on the contract of insurance. When private respondents issued the "all risks" policies to petitioner, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. This obligation prescribes in ten years. FACTS Petitioners: Mayer Steel Pipe Corporation, Hongkong Government Supplies Department Respondents: Court of Appeals, South Sea Surety and Insurance Co., Inc., Charter Insurance Corp. In 1983, Hongkong Government Supplies Department contracted Mayer Steel Pipe Corporation to make and supply steel pipes and fittings. Mayer shipped the pipes and fittings to Hongkong.

Prior to shipping, Mayer insured the pipes and fittings against all risks with South Sea Surety and Insurance and Charter Insurance. The pipes and fittings covered by Invoices MSPC-1014, 1015 and 1025 worth US$212,772.09 were insured with South Sea. Those covered by Invoices 1020, 1017 and 1022 worth US$149,470.00 were insured with Charter. Mayer and Hongkong appointed Industrial Inspection (International) Inc. as third-party inspector. Industrial Inspection certified all the pipes and fittings to be in good condition before they were loaded in the vessel. When the goods reached Hongkong, a substantial portion was damaged. Petitioners filed a claim against private respondents for indemnity under the insurance contract. Charter paid Hongkong HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because the insurance surveyor's report showed that the damage is a factory defect. In 1986, petitioners filed an action against private respondents to recover HK$299,345.30. Private respondents said that they have no obligation to pay the amount claimed because the damage to the goods is due to factory defects not covered by insurance policies. RTC: Ruled in favor of petitioners. Damage to goods is not due to manufacturing defects. Insurance contracts of Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage. Only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct of insured. Respondents must pay petitioners: 1. Sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest 2. P100,000.00 as and for attorney's fees 3. Costs of suit CA: Set aside decision of trial court and dismissed complaint on the ground of prescription. Action is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed more than two years from the time the goods were unloaded from the vessel. The carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

ISSUE Whether or not cause of action had already prescribed HELD No. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when they should have been delivered. Only the carrier's liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. The Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier

under the contract of carriage. It does not affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code. In Filipino Merchants Insurance v. Alejandro, the shipper filed a complaint against the insurer for recovery of of money as indemnity for loss and damage of insured goods. The insurer filed a thirdparty complaint against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint more than one year after delivery of the goods. The court held that the insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been delivered. The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the present case, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by private respondents to Mayer. The ruling in Filipino Merchants should apply only to suits against the carrier filed by the shipper, the consignee or the insurer. The insurer may no longer file a claim against the carrier beyond the oneyear period. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril. An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act of the insured. When private respondents issued the "all risks" policies to Mayer, they bound themselves to indemnify the latter in case of loss or damage to goods insured. This obligation prescribes in ten years, according to Article 1144 of the Civil Code